Types of Personal Loans

The two most common types of personal loans are secured loans and unsecured loans. Secured Loans tend to be for large amounts of money and for longer periods of time, typically five years or more.

Home loans are a form of secured loan, whereby you borrow money against the value of your property. But smaller secured loans exist, which are also tied to your personal assets. If you miss repayments on a secured loan, you risk losing the assets tied to the deal - often your house.

The main benefit of secured loans, other than being able to borrow more money over a longer period, is that the interest rates on offer tend to be low and can be fixed or, on occasion, variable.

Unsecured Loans are usually used for smaller sums and over shorter periods of time. They don't require any personal assets to be tied into the agreement, although failing to repay the loan will still have serious consequences.

Choosing a personal loan

Different types of loans suit different purposes - you wouldn't buy a car with a credit card and you wouldn't take out a five year loan for a weekend away! If you don't do some basic homework and you end up taking the first loan you are offered, you could end up paying far more than you needed to, or be saddled with repayments for far too long. Here are a few pointers when considering a loan:

• Shop around - whenever there's choice in life,it's never a good idea to commit to anything without at least researching some of the alternatives, especially a financial commitment
• Can you afford it - it's vital that you think carefully about whether or not you can comfortably afford to repay the loan you are considering. If you have any doubts, don't take the loan in the first place.
• Consider the loan duration-the repayments might be smaller with longer loans, because you are spreading the repayments more thinly, but the total amount you have to repay may be higher because you're paying interest over a longer period
• Checkout any fees - some loans come with additional fees, such as arrangement or early repayment fees. They could be worth paying if the overall cost of the loan is still appealing, but make sure any such cost is taken into account
• Look into flexibility - you might not always have much choice, but it can pay to have flexibility, especially with a longer-term credit loan. It could mean you can pay more or less than usual some months, take a repayment holiday, or pay off the loan early without any extra charges
• Ensure you have a good understanding of what's being offered - any advice you are given should be clear and, if you don't understand something or feel you are being bamboozled by jargon, don't be afraid to ask for clarification.

Apply Now